Moody?s Refutes Media Report on Defaults

A Financial Times report early this week that Moody’s Investors Service was seeing higher credit card defaults as a result of the problems in the U.S. subprime market is erroneous, according to a Moody’s spokesperson. The FT story was picked up by media outlets worldwide.

Moody’s last report on U.S. credit card markets, which came out July 11, said that U.S. credit card performance had weakened in May, compared to the year earlier period, but blamed the change on legal and statistical anomalies, not on the subprime market.

The anomaly followed the enactment of new U.S. bankruptcy laws in October 2005. Many consumers rushed to file bankruptcy that year, leading to a leap in credit card charge offs. Many of those troubled consumers were washed out of the market, so both bankruptcy filings and credit card charge-offs dropped in 2006. Moody’s reported that the 2007 numbers are being compared to artificially low numbers the year before.

Indeed, Moody’s July report found that U.S. credit card performance “remained strong by historical standards.”

Moody’s has yet to issue any report showing any links between the subprime mortgage market crash and credit cards, the spokesperson added.

In a May report that addressed the state of the U.S. credit card market, Moody’s analyst William A. Black said, “Performance in the subprime mortgage sector has deteriorated, but it is by no means clear that the same group of borrowers defaulting on their mortgages is also defaulting on their credit cards.”